Speaking to the Levelling Up, Housing and Communities Committee this week following its inquiry into the scheme, Dr Alison Wallace, senior lecturer in social policy and housing, Centre for Housing Policy, University of York said: “Over time service charge is uncontrollable, opaque and [buyers] don’t have illustrations of how much they’ll cost.”
She also said the consumer price index (CPI) plus one per cent annual rise in the rental portion of shared ownership was relevant when it was first introduced as a means for people to transition into homeownership. Wallace said the low cost was a “stick to make [people] buy” but stagnant wages and inflating house prices meant this did not happen as much anymore.
Wallace said there were benefits to shared ownership but its there were issues “which needed to be unpicked”.
Sue Phillips, founder of Shared Ownership Resources said there was a lack of granular data on who shared ownership was beneficial to and the data that did exist tended to focus on newer shared owners of up to three years.
Citing data from the Affordable Housing Commission which wrote that when housing costs exceed a third of net household income, there was a risk of financial difficulty, arrears and debt, Phillips said: “People come into shared ownership with a 40 to 45 per cent and over affordability ratio of housing cost to income.”
She said she wanted to see research done on whether shared ownership would still be viable if affordability was capped at 30 per cent.
Value for money
Phillips said when it came to shared ownership, there was a “conflation of demand with value for money”.
She said people went into the tenure with expectations and aspirations that are not realised and demand is “maybe followed by buyer’s remorse”. Phillips said this depended on what timescale the value for money was recorded over.
She said there was an assumption that people should be “grateful for getting a foot onto the housing ladder” but said if the shared ownership cost was high then this was a missed opportunity from not putting the money towards a pension or better quality of living.
Wallace said incoming changes to the scheme such as the decision to shift repair costs onto housing providers did not solve the problem in the long run and only applying it to new shared ownership leases created a “two-tier system”
Alternative options
Steve Collins, chief executive of Rentplus-UK, was asked why the rent to buy could be a better route. He said there were no upfront costs or issues around service charge. He added that it was his view that “service charge costs should be proportionate to the equity stake that providers have”.
He said rent to buy was an affordable product which charged 80 per cent of the market value as well as being inclusive of service charges and estate costs. “That brings down the cost burden on tenants and makes it a lot more affordable”. He said this was targeted to lower income households who could not afford to buy a home, even through shared ownership.
Collins said it did not have a lot of take up because it did not have government support.
“It’s been quite challenging to break into a market that’s really well defined and well supported by government and other literature,” he added.
Collins said when he faced local authorities, he had to explain how rent to buy conformed to planning policy, adding: “It would be far easier if we could have a similar level of support from the government in the way that shared ownership has as a sector”.
The panel agreed that shared ownership could also be complicated to understand and Phillips said there should be an independent, impartial information source to explain each homeownership model.
Collins said transparency was a problem across the sector.
Barriers to staircasing
The panel was asked whether shared owners should be encouraged to staircase to 100 per cent.
Phillips said the purpose of shared ownership had “become fragmented” over time and people viewed properties as either a starter or forever home.
She said people tended not to staircase either out of choice or because the option was not in their reach. Phillips also said staircasing made it harder to sell and the pool of people who could afford to as well as meet affordability criteria “diminishes as the value of the property rises”.
She said this is why many shared owners decided not to staircase to 100 per cent or at all.
Phillips said proposals to reform staircasing which focused on admin or legal fees “missed the point” as it was the premium at current market value that made it unaffordable. She also questioned whether shared owners were able to save while under the tenure.
Wallace said this was also influenced by the housing market as well as the economy because inflation-linked rent and pay trajectories affected whether it was better to staircase and pay down the mortgage or move on.
Phillips said the downside to staircasing was that the social housing sector lost a home.
Collins said staircasing should be encouraged and local authorities should be restricted from placing a limit on how much could be purchased.
He said changing how shares could be purchased would only encourage staircasing if the associated costs were addressed.
“If you buy a one per cent share or a 10 per cent share, you’ve still got the legal transactional costs… it’s prohibitive to some audiences,” he added. Collins said a buyer who was staircasing would be living in a home that had already been checked so there was not always a need to repeat the inspection.
